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Broker price scramble kicks off

It’s showdown time: Online brokers are finally being forced to reveal the fees they will charge in the post-RDR world.

No longer can the holdouts mask their costs with commission. Over the next couple of months everyone will have to reveal their hand, because trail commission can no longer be paid from new investments from 6th April.

In other words, you will no longer be paying for superficially ‘free’ broker’s services via an inflated Ongoing Charge Figure (OCF) routed via your fund manager.

Take a look at our broker comparison table. Every firm in the commission-funded broker and fund supermarket categories will have to come clean on its prices shortly; don’t be fooled into thinking they’re offering a good deal until they’ve revealed their post-RDR fees.

Platform lucky dip

To attract new money from customers, brokers are now scrambling to offer what are known as Clean Class1 funds. And they will have to levy an explicit platform fee for their own services.

Clean Class funds are just a sweet-smelling, compliant variant of the old-style Unit Trust and OEIC funds that most brokers offer now. The difference is that the Clean Class funds have stripped out trail commission and platform fees from their OCF.

So generally Clean Class funds are cheaper than their Dirty counterparts – but then you’re stung for the broker’s fee on top.

At least you can see what you’re paying and to whom, but if you’re a passive investor like me, then your costs are expanding faster than the waistlines of the Western world.

Fund laundering

If you’re already sitting on a pile of Dirty Class funds, then one of two things is likely to happen:

Conversion – Your old funds will be converted into their equivalent Clean Class variant. This shouldn’t cost you anything and your broker should tell you if it’s happening. The unit amount and price of your new fund will likely be different to the old, but the value will be exactly the same.

You are not liable for Capital Gains Tax when your fund converts, even if you aren’t sheltered by an ISA or a SIPP.

Stasis – Your dirty fund is closed to new investment. It can still grow / plummet in value, but you can’t put new money into it and it will continue to pump trail commission into whichever financial organ is feeding from it. Any regular investment scheme will cease but you can still sell your fund.

Even so-called legacy funds must stop commission payments by 6th April 2016, so they will all have to be converted by then.

Best broker bugaloo

By the end of the next few months we should finally have a good idea of how competitive our current favourite brokers are really going to be.

We’ll track the changes on our broker comparison table and keep you in the know.

If you have a small portfolio (£30,000 or less) then look for a broker that charges a percentage of your assets and no dealing fees on funds. The current champion of the little guy is Charles Stanley Direct.

Investors with large portfolios suffer when fees aren’t capped, so look for a fixed cost broker. Interactive Investor looks very cheap now on that score, especially for families with multiple accounts.

Note that some brokers don’t charge a platform fee for Exchange Traded Funds (ETFs) in ISAs or trading accounts. This can work out well for large investors, as dealing fees make ETFs a costly business for anyone who can’t trade at least £300 a throw.2

If you want to leave your broker after a price hike then ask them to waive their exit fees. Some will do this automatically to offset bad PR and some will do it if you twist their arm. Others will just be complete gits about it.

Bear in mind that prices will never be set in amber. The cheapest broker one quarter could well be trumped the next. If you’re fuming over a price rise then check how many years it will take to earn your exit fees back if you switch, even if you pick the best option. (You might do this if you decide to switch funds, too).

Don’t get ripped off but don’t agonise over a comfortable place in mid-table either.

Take it steady,

The Accumulator

  1. Super Clean is an industry term that refers to discounted variants of funds. Super Clean variants are offered exclusively to powerful platform players in return for greater promotion / not being destocked, that sort of thing. Super Clean equals a bit cheaper but definitely not cleaner. []
  2. A dealing cost of 0.5% via a £1.50 regular investment fee is the maximum I could stand to bear on a single ETF purchase. []

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{ 222 comments… add one }
  • 201 Ian Vestor February 14, 2014, 12:57 am

    @TI.

    I think you may be correct in thinking that I’ve managed to come up with the worst possible way of interpreting the new fee structure. I guess that people with 60-249k invested in funds with HL are the worst affected.

    There is no getting away from the fact that I and many others have been handed a 2000%+ increase in platform fees.

    I’m quite surprised that HL have not chosen to cap these fees, as one would assume they must have a large number of investors in this bracket who must all generate a decent profit for the company. Or is it that this bracket of customer are the ones that HL have decided to ‘offload’?

    Interesting to read in previous comments that some have been offered a reduced percentage fee or a cap when they’d threatened to depart. I wonder if they may end up revising their new rules before too long.

    I think it may be prudent to wait a while before jumping ship to a competitor.

  • 202 The Rhino February 14, 2014, 11:52 am

    @ vestor – it may be worth investigating a move from funds to ITs or ETFs. Maybe that way you could maintain the same asset allocation but benefit from the £200 cap on the HL SIPP? Fixed fee price for a premium % fee service?

  • 203 Ian Vestor February 14, 2014, 11:58 am

    Mr Rhino,

    Yes, I agree that is probably a wise move that many HL account holders will have to consider.
    It’ll be a shame though, to have to switch from the simplicity of the Vanguard LS funds, back to having to rebalance a number of different ETF’s.

  • 204 The Rhino February 14, 2014, 12:21 pm

    lets hope vanguard create a lifestrategy ETF. That would be very nice to have..

  • 205 Dan Dodex February 14, 2014, 2:51 pm

    I am one of those in the £60k-£249k bracket that has decided to move to III. Just waiting for the forms to arrive. I only hold a Vanguard Lifestrategy 80% fund.

    WRT moving away from funds to stay with HL, I rather find a provider to match my investing style than re-arrange my investments to match the charging structure of my current provider.

    I will recover the £135 of the move within the first quarter of lower charges.

  • 206 ABC1 February 14, 2014, 3:14 pm

    @ Dan Dodex,

    I’m doing the same as you – sent off the SIPP transfer form yesterday to III. I also only have a Vanguard LS fund which to my mind covers everything, so why start messing with everything just becuse the broker hikes his fees – change the broker!

    Keep us posted on your experience with III and I’ll do the same.

  • 207 The Rhino February 14, 2014, 3:29 pm

    I considered iii but in the end went iweb because I am so tight

    I liked a previous posters analogy, when the plastic bag costs more than your groceries you know its time to shop elsewhere..

  • 208 ABC1 February 14, 2014, 3:55 pm

    @The Rhino – I just checked iweb and their charge for a SIPP is £150 per year which is a touch more than III at £144. Have I missed something?

    Also, from what I remember, they didn’t seem to offer the Vanguard Life Strategy fund that I have, or maybe it was just a limited selection.

    Having said that, still a much better deal than H-L for a ‘higher value’ portfolio.

  • 209 Dan Dodex February 14, 2014, 4:18 pm

    It was III for me as for £144 I could hold my SIPP and ISA and my partner’s SIPP. Then £54 a year for a monthly contribution into each through the regular investment plan, which is reduced during the first year thanks to their trading credit plus cash back offer.

  • 210 The Rhino February 14, 2014, 4:35 pm

    iweb have got a load more vanguard stuff now inc. all the lifestrategys

    its good for me as i’m only getting an ISA and fund acc with them. The SIPP is staying put. HL are still cheap for small SIPPs.

    Also I’m reducing my trading freq from monthly to annually so have no need for a regular dealing rate..

  • 211 CisforV February 14, 2014, 6:56 pm

    @Dan Dodex – I’m pretty sure you’ll have to pay £144pa for the SIPP and the £20pm for the ISA on top with II.

    I’m thinking of consolidating my two fund ISA into a single LS fund, then transferring to Halifax with £2pm regular investment fees. Then putting my SIPP with II and only having one or two annual investments.

    I’m also wondering how flexible those regular investment systems are. As in, could you configure a regular investment for just a single month then cancel it? Ultimate penny pinching 🙂

  • 212 ABC1 February 14, 2014, 9:59 pm

    @CisforV – If you pay the £144 SIPP fee with II then you don’t pay the ISA fee at all.

    They also tell me the regular investment is very flexible ie you can change it every month – but as I haven’t got that far yet I can’t say until I start trying it for myself.

  • 213 CisforV February 14, 2014, 11:38 pm

    @ABC1 – Oh, many thanks for clearing that up and sorry to @Dan Dodex for questioning your logic. I re-read their charges and the Monevator table and understand now. II it is then for ISA and SIPP. I might have a play with their free research account.

  • 214 BeatTheSeasons February 17, 2014, 11:03 am

    I’ve contacted Charles Stanley Direct with a list of the funds I hold at Hargreaves Lansdown and they’ve confirmed that they can transfer in and then hold the clean class equivalent of every one. Including the ones that HL claim are exclusive to them!

    When I called HL last week they were completely evasive and unhelpful about this, but I wonder if that will change when they get the signed form on their desk. If not I’m definitely going to complain about the £25 per fund exit penalty to see if I can get it reduced or waived.

    This reminds me of the legal cases over bank charges and credit card ‘fines’ (in the latter case the banks never actually won in court). I read somewhere that it only costs HL a few pounds to do the transfers and the rest is profiteering. You could argue it’s an unlawful penalty under common law. Or unfair under the Unfair Consumer Contract Terms rules. Failing that it’s blatantly uncompetitive which is generally seen as A Bad Thing. I suspect they will back down if taken to court!

  • 215 The Rhino February 17, 2014, 1:24 pm

    This letter template has been doing the rounds at MSE. It seems to result in HL agreeing to waive fees and ensure new charges are not applied if a transfer is pending. It may need to be tailored to suit your own circumstances so as always DYOR..

    Senior Client Services Manager
    Hargreaves Lansdown
    One College Square South
    Anchor Road
    Bristol
    BS1 5HL

    Dear Sir/Madam

    OFFICIAL COMPLAINT – Refusal to Waive Exit Charges Following Unilateral Charge Increases

    Please accept this letter as a formal complaint that you are refusing to allow me to exit freely from my Hargreaves Lansdown accounts following your unilateral increase in charges. (The new charges include a new fee for receiving half yearly paper statements, a new account closure fee, a new fee on cash transfers to another provider and a new fee for probate valuations. And that is only some of them.)

    As a result of your new charges I believe I will be materially worse off, now and in the future, and I am therefore going to transfer my investments to another provider. I also object to the increase exit charges that will apply in future and the increased charges that will apply in respect of a probate valuation. Since the reason I wish to transfer is due to your unilateral variation of the contract I do not believe it is fair to expect me to pay any exit charges. This is because I believe it is unfair only offering me two unacceptable options i.e. to either (1) accept charges I would never have originally agreed to, or (2) pay to avoid these changes. Neither option is reasonable. To be reasonable you also need to offer either (a) the option to continue the contract on the current charges or (b) the opportunity to exit without charge.

    I further believe that by denying me an opportunity to exit free of charge your unilateral increase in charges is not just unfair but also contrary to FSA and OFT guidance.

    I also do not believe these new charges are required by regulation. But even if they were I believe it is still against OFT and FCA guidance to increase your charges without giving customers the option to exit freely. (See for example section 12.4 of the OFT’s “Guidance for the Unfair Terms in Consumer Contracts Regulations 1999” published in September 2008. This highlights that a valid reason for varying a contract, such as a regulatory change, is NOT sufficient for a price change to be fair. Consumers must also be given the chance to cancel freely.)

    Please agree to refund or waive all my exit and transfer fees and agree not to levy any of the new charges during the period the transfer is taking place. If you do not agree to this then please confirm that I can take my complaint to the Financial Ombudsman Service.

    Please do not telephone me about this matter. For evidence purposes I wish all communication to be in writing.

    Yours …

  • 216 ABC1 February 17, 2014, 1:30 pm

    @Beat The Seasons – Best of luck to you and let us know how you get on with that one.

    I just asked H-L to waive the transfer fees but they refused, saying that they offered me a reduced ongoing charge (which I declined, as it is still more than II and ad valorem rather than fixed.) But at least the transfer charges are a one-off, whereas the ongoing charges are constant and would have increased as I (hopefully!) pay more into my pension and ISA

  • 217 BeatTheSeasons February 17, 2014, 1:40 pm

    @ The Investor

    An opportunity for Monevator to launch a PlatformFeeSavingExpert?

    Martin Lewis sold his website for £87m – you could buy a nice house in London for that!

  • 218 The Rhino February 17, 2014, 1:47 pm

    this exists: http://www.comparefundplatforms.com/compare

    but i don’t think its quite as useful as the table/spreadsheets available here

  • 219 BeatTheSeasons February 17, 2014, 2:04 pm

    Say you have 10 funds with HL, you have to pay £250 to transfer out.

    But if you sell the funds and transfer cash it’s free of charge (for a few more months) but you have the risks of being out of the market.

    Does it seriously cost them £250 vs £zero to carry out these transactions?!

  • 220 The Rhino February 17, 2014, 2:17 pm
  • 221 The Investor March 8, 2014, 10:47 am

    I’m excited to reveal that The Accumulator will be talking about platform fees on MoneyBox on Radio 4 today (Saturday 8 March) at 12.

    Let’s tune in and give him our support! 🙂

  • 222 Snowman March 9, 2014, 10:43 am

    Well done The Accumulator!!!

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